Shares in Kaisa Group Holdings are down by more than nine percent after the company revealed that the Shenzhen government had frozen sales at three of its projects and the company’s largest shareholders scaled back their stake in the Chinese real estate developer.
Kaisa, which has been linked to former Politburo member Zhou Yongkang, may still be in for more trouble despite denials that founder and chairman Kwok Ying Shing has been detained by the authorities. Trading in the company’s shares resumed on Thursday last week after halting for 24 hours to release information related to a private share offering.
Stock in the Hong Kong-listed company fell by as more than 12 percent last week before recovering to HK$2.35 per share at the close of trading on Friday. The drop in share value was the greatest that Kaisa had suffered in more than three and a half years.
Sales of Kaisa’s Shenzhen Projects Banned
After shares in Kaisa were halted on Wednesday, the group reopened trading on Thursday with a two-part announcement to the exchange – first alerting the public to a sale of shares by the chairman’s family trust, and second explaining the legal difficulties surrounding its Shenzhen projects. Neither item appears to have been reassuring to shareholders
Regarding the Shenzhen developments, Kaisa simply stated that units in three projects – Shenzhen Dapeng Kaisa Peninsula Resort, Shenzhen Kaisa Yuefeng Garden and Shenzhen Kaisa Central Plaza – had been banned from further sales by the local branches of Shenzhen’s Urban Planning Land and Resources Commission. No path was indicated for reopening of sales of the projects.
In the same announcement, the developer revealed that the Kwok family trust reduced its exposure to its own company by selling 11.21 percent of Kaisa’s shares to insurer Sino Life for HK$1.7 billion ($219 million). Following the share sale, the Kwok family will still hold 49 percent of the group’s total shares, and Sino Life will have upped its stake to 29.96 percent of the company.
The insurer paid a premium of 10.19 percent over Tuesday’s closing price. Both Sino Life and Kaisa are based in Shenzhen.
Kaisa Linked to Zhou Yongkang
Despite the premium paid by Sino Life, analysts familiar with the transaction indicate that the sale reflects distress at Kaisa.
Since October the company has been denying reports that Kwok has been detained by investigators, and the developer has been named in media reports as having dealings with recently arrested former Politburo member Zhou Yongkang.
Reports in official media earlier this year highlighted partnerships between Zhou’s son, Zhou Bin and the son’s mother-in-law, Zhan Minli, with both Kaisa and fellow Hong Kong-listed developer Fantasia Holdings Group.
Property Developers Coming Under Greater Scrutiny
The problems at Kaisa indicate that China’s authorities may not be done digging through the dealings between the country’s real estate developers and powerful party members.
During October this year Guangzhou-based developer Agile Property was forced to reveal that two of its directors, including chairman Chen Zhuolin, had been detained by authorities in Kunming following charges of illicit land dealings in the southwestern province. Chen remains in custody.
In July, Wong Choihing, chairman of Hong Kong-listed logistics developer Hydoo International Holding was detained on allegations of illicit land dealings, and Kong Jian Min, chairman of Guangzhou’s KWG Property Holdings, has also been accused of graft and corruption related to land sales.
Several officials arrested in Guangdong this year, including former Guangzhou party secretary Wan Qingliang, have been accused of colluding with developers on land sales.